THE Reserve Bank is worried that Australians are unreasonably pessimistic about the economy, and it believes the campaign against the carbon tax is to blame.

In a bid to stimulate the economy, the Reserve has cut its cash rate by 0.25 of a percentage point. The cut was in part a response to a slowdown in China and turmoil on financial markets spooked by the European economic crisis.

But also central to the decision was a concern that no matter how good the domestic economic news, Australians are scarcely noticing in an atmosphere muddied by campaigning against the carbon tax.

In the unlikely event that the banks passed on the rate cut in full, it would slice $48 off the monthly cost of servicing a $300,000 mortgage.

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The Bank of Queensland was the first to move, cutting its variable home rate by 0.20 of a percentage point.

But the four big banks had not responded by last night. Australia Institute researcher David Richardson said each day they delayed added $6.2 million to their collective profits.

The difference between the official cash rate and standard variable loan rates has now blown out to the widest level since banks began shifting rates independently of the Reserve four years ago.

Analysis by The Age shows the big banks have widened their margins on average home loans by as much as 1.45 percentage points in the four years.

In total, banks have passed on less than half of the 2.5 percentage points of official rate cuts since the start of the global crisis. This represents an additional $269.50 per month that is being paid on an average $300,000 mortgage.

Regardless of how much of the latest cut is passed on by banks, the Reserve is understood to be concerned that its attempts to stimulate the economy are being compromised by lobbying against the carbon tax, which is also obscuring the benefits of the July 1 income tax cuts.

When the Reserve cut rates by 0.50 of a percentage point in May, the Melbourne Institute consumer confidence index barely moved, and assessments on whether it was a good time to buy a major household item went backwards.

The Reserve governor's statement released after yesterday's rate cut said that despite modest economic growth and low unemployment, Australians continued to ''exhibit a degree of precautionary behaviour''.

If confidence does not lift and the global financial situation gets worse, the Reserve will cut rates again. It believes the very low official inflation rate gives it room to do so.

Treasurer Wayne Swan raised the possibility of more cuts, saying the Reserve had ''further room to move''. He appealed for Australians to become more confident, saying the economy was strong compared with the rest of the world.

''I know that as Australians watch these events unfold overseas they get the impression that all of these things are happening in their back yard and perhaps in their economy, but our economy remains strong,'' Mr Swan said.

Shadow treasurer Joe Hockey said the central bank had cut rates to ''near emergency levels''. The Reserve cash rate stands at 3.50 per cent, just half a percentage point above the low of 3 per cent reached during the global financial crisis.

But mortgage rates are nowhere near as low. During the crisis, standard variable mortgage rates slid to 5.75 per cent. Ahead of yesterday's Reserve cut, they stood at 7.05 per cent.

Last month, most lenders withheld about a quarter of the RBA's double-sized rate cut, citing the need to cover their own rising borrowing costs. Bank executives have recently blamed intense competition for deposits in Australia as a key reason for partly withholding rate cuts.

When reporting their recent profit results, each of the big banks said their margins had been squeezed as they attempted to balance rate cuts with funding costs.

Official advice provided to the Treasurer says the big banks can afford to pass on the latest cut in full. But the Reserve noted yesterday that international turmoil is pushing up bank funding costs again.

ANZ will announce its decision on Friday. National Australia Bank said it stood by its commitment to offer the lowest rate of the big four.

The Australian dollar jumped more than US1¢ yesterday after the Reserve resisted a larger 0.50 percentage point rate cut.

Futures traders assigned an 80 per cent probability to a cut of 0.50 when the Reserve board next meets on July 3.

165 comments

With HUNDREDS of Job losses in Victoria every week, and thousands of Job losses some weeks.....I think a lot of People are very concerned how they will pay their bills, this would preceed any concerns about Carbon Tax.

Get real, there are real people with REAL concerns!

Commenter

Peter

Location

Melbourne

Date and time

June 06, 2012, 6:51AM

I totally agree, what a condescending out-of-touch comment! People have every reason to be worried. Job losses reported daily, big companies going belly-up, building industry is stuffed, share market volatility, massive utility bills and the threat of everything going up much more due to the stupid carbon tax. Need I go on...

Commenter

Jen

Location

Melb

Date and time

June 06, 2012, 8:37AM

Peter, you liberal staffers are quick to comment on these articles, and becoming even easier to spot as you constantly spit out rhetoric to spread fear. I like how you casually mention job losses without saying how low Australia's unemployment is. Real concerns? Please go into detail, when Australia is the second placed country on the Human Development Index which measures quality of life.

Commenter

Bill Goatse

Date and time

June 06, 2012, 8:43AM

And yet Peter the unemployment is at record lows.It is normal for jobs to be lost and gained, how many furriers are about since the car took over from Horses?Or typewriters since the PC?The constant talking down of the economy is a self seeking proficy Abbot is about destroying this economy for his personal gain just as Howard starved the states of funding gave the impression of bad management of these states during his mismanagement of the economy.I ask you where did the income taxes collected on the states behalf go when the GST was introduced? all to the Federal surplus along with stopping most infrastructure development and wrecking health and education services

Commenter

AustraliaFirst

Date and time

June 06, 2012, 9:06AM

That doesnt mean they are right.

Commenter

Carl

Date and time

June 06, 2012, 9:09AM

And thousand upon thousands of jobs are being created in WA and Queensland by and around the mining industry. The RBA needs to take all of that into account. Unemployment is still very, very low.

Commenter

James from Brisbane

Date and time

June 06, 2012, 9:13AM

Bill unemployment might be low but all the evidence points to real wages decreasing and the cost of living increasing!

Commenter

Adrian

Location

Melbourne

Date and time

June 06, 2012, 9:36AM

The job stats are only taken from a survey pool of 19,000 people, & the ABS survey these same people very month to get the figures. How can you get a fair assessment then?So I do not beleive the figures spruiked by the ABS. I only see what is happening in my area, & people I speak to. No I am not being 'negative' just realistic!

Commenter

Modern Woman

Date and time

June 06, 2012, 9:39AM

Being a self funded retiree it is not only the carbon tax that is causing me concern but also the RBA rate cuts. My money is just dissappearing. I have stopped spending less every rate cut and will be forced to do so every time there is one. If everybody in the same situation as myself is doing the same how are rate cuts going to help kick start the economy when they are continually getting less to spend.

Commenter

DavidB

Date and time

June 06, 2012, 9:40AM

I do believe in the serious threats of global warming. In my view the effective ways to fight it are: i) One child policy in developing countries and ii) Nuclear Energy.

Other things like the carbon tax in Australia are simply illusions to gain votes.

The people who are to blamed for this irrelevant but harmful carbon tax to Australia are PM Gillard and Team and do not forget also Dr B Brown and his Gang.

300,000,000 Indians do not have electricity and when they get it mainly from coal Australia's position in the global warming equation is even more irrelevant.